New Year Financial Resolutions

2018 financial resolutionsTo say that 2017 was an eventful year is an understatement. The decade long financial crisis officially came to an end. Unemployment fell .6% and 2 million jobs were added. The GDP growth rate finally climbed past 3%. The stock market reached historic highs, including several benchmark indices. Consumer sentiment rose as a result of higher wages that led to increased spending. Business spending and acquisitions increased. Oil prices surged after years of dismal returns. And all of this managed to happen despite the US being slammed by two massive hurricanes, three Federal interest rate increases, the Russian investigation, domestic violence and schoolyard squabbles between world leaders. After repeated failed attempts to repeal Obamacare, Congress settled with repealing the individual health insurance mandate and all of this was topped off by major tax reform legislation.

One of my favorite New Year quotes is by Benjamin Franklin: “Be at war with your vices, at peace with your neighbors, and let every new year find you a better man.” It is a new year and with new years, come resolutions. All too often, though, the old year ends with the realization that we fell short of our hopes and expectations. So perhaps for 2018, instead of overly lofty resolutions, we can empower ourselves with realistic financial resolutions.

According to NerdWallet’s 2017 Credit Card Debt Study, the average American household has credit card debt of $15,654. There is a stigma associated with credit card debt and it is a major factor in financial stress. We pay hundreds of dollars in credit card interest each year and this will only worsen as interest rates increase in 2018 and beyond. If your resolution is to reduce credit card debt, start by creating a spreadsheet of your debt and associated interest rates. There are two options to pay off debt: The less logical but sometimes more satisfying option is the debt snowball method, which involves paying the smallest debt first and working your way towards larger debt balances, regardless of interest rates. The second option is the debt avalanche method and the idea is to make larger payments on the one debt with the highest interest rate to pay it off quicker. These methods should be combined with consolidating debt to lower interest rates whenever possible.

Most credit card debt is tied to unnecessary spending. You may have heard of…or even tried…the resolution of ”a year of no shopping”.  In a financial column I read, Ross Levin put forth the four-day rule as a realistic alternative. The premise is you set a maximum dollar amount and purchases below this level require little thought or guilt to make. However, purchases above this maximum dollar amount should be thought about for four days before making a purchase. Hopefully, you will find that some of the purchases are unnecessary, thereby reducing your spending and credit card debt. You can take this a step further by saving the amount you would have invested.

Speaking of savings, if you are not already doing so, commit to saving 15% of your gross income. This can be done in tax-advantaged retirement accounts, savings accounts or any combination of the two account types. Countless studies have been done on the benefits of saving early and compound returns. However, it is never too late to start.

No savings plan is complete without a budget that tracks your income and expenses, thereby making that 15% savings an achievable goal. This can be done simply with an Excel spreadsheet or various software and online programs.

After the large scale Equifax data breach last year, 2018 should be the year of credit accountability and data protection. Monitor your credit and financial account statements quarterly. Set a calendar reminder to review your credit score for any changes. Get a free copy of your credit report at AnnualCreditReport.com. The sooner that you discover any issues, the easier it will be to fix. You can go a step further by freezing your credit. If necessary, use a credit monitoring service.

Finally, The Tax Cuts and Jobs Act was signed into law and involves major changes to tax rates, itemized deduction limits and child tax credits. Although the impact of this new law will not be seen until you file in 2019, it would be an ideal opportunity to meet with your accountant sooner rather than later to understand how it will affect you. File your taxes early this year to be prepared and determine what you can and can’t deduct on your 2018 tax return

The motivational speaker, Cavett Robert, said, “Character is the ability to carry out a good resolution long after the excitement of the moment has passed.” So this year, let’s all make those resolutions and either be strong of character or super excited all year!

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